Debt resolution under IBC process: Banks take 47% haircut in RBI first list

With debt resolution under the Insolvency and Bankruptcy Code process picking up, banks have seen Rs 550 billion of recoveries at an average 47% haircut in the Reserve Bank of India’s (RBI) first list announced in June 2017. The pick-up in recoveries to 4% of loans in June quarter was also primarily on account of IBC-led resolutions. According to Credit Suisse, though the IBC process is time-bound (180 days extendable to 270 days), many of the larger cases have witnessed delays.

However, the usual 300-day timeline is still significantly superior to the other court-driven processes (DRT, SARFAESI) where it takes even a decade for the entire process to get over. In the past, the RBI also attempted several restructuring/dispensation for bank-led resolution processes. However, these did not yield strong results, with 100% of SDR and 70% of corporate restructuring faltering or failing.

Lack of capacity at the NCLTs is turning out to be a big concern for the investors as well as lenders. With now over 2,200 cases filed, they appear to be getting clogged-up. Among the 28 companies under the 2nd list, 10 with 40% of debt are yet to be admitted to the NCLT.

None of the cases have seen any resolutions. A couple are close to being resolved while a few are likely to go into liquidation. With an estimated additional 60-65 large companies expected to be referred to the NCLT following the February 12 circular of the RBI, the timelines are likely to be further delayed.